This is a defining moment for the U.S. economy. There is a fairly broad consensus that the economy is suffering from neglect and needs fixing. Even the President concedes that something is seriously wrong and is searching for a new economic policy. At the same time, the end of the cold war has freed resources needed to attack our economic problems. While we may have to spend some money to shore up the republics of the Commonwealth of Independent States, the sums involved will be peanuts compared with the savings to be found in the military budget--roughly $300 billion over the next decade

The charge that America doesn't know how to revamp its economy is nonsense. The cold war was won through the investment of vast sums of money and patience. The same kind of persistent long-term approach will be needed to fix the economy. And it won't take the 45 years it took to beat back communism. But it will take what President Bush describes as "the vision thing."

Here's our vision thing: Productivity growth and productivity growth alone is key to international competition and a sustainable rise in our living standard. That suggests a clear test for each new policy initiative: Does it have a reasonable chance of making Americans more productive?

We need to inject billions of new investment into the economy, not to cut taxes to raise consumer spending. The U.S. has an investment deficit, not a consumption deficit; a shortage of human capital, not of consumer durables. Both private and public investment need help.

On the private side, an investment tax credit rewarding businesses for capital expenditures above historical norms would stimulate growth directly and far more effectively than a capital-gains tax cut ever could. Such an ITC must, as usual, be limited to investment in new capital equipment. But it should be linked to accelerated depreciation on new facilities needed to house new equipment. And businesses need bigger tax credits for research and development. The misguided idea, popular on the Hill, of reviving the ability to write off passive losses in real estate would only promote investments as tax shelters, not for the long term.

Higher productivity growth requires two kinds of public investment. The first is physical investment in revamping the nation's crumbling infrastructure. Public funds would flow directly into the domestic economy--in contrast to tax cuts, which import-prone consumers would partly spend abroad. The second is investment in human capital. We know that some kinds of education expenditures, ranging from the Head Start program for preschool children to apprenticeship programs for high school graduates, are effective. We should not be afraid to fund them generously.

While health care isn't usually thought of as a growth issue, it is. Exploding medical costs threaten to wipe out any peace dividend. Medicare and medicaid costs are projected to rise by $325 billion over the next decade. Paying the medical bills ef the elderly and the poor alone could soak up more than 5.2% of gross national product by the year 2000. And paying for medical insurance for the rest of us imposes an enormous burden on the private sector. Our health care system is not internationally competitive.

Rapid economic growth, as a consequence, requires bold changes. Business Week supports a move to a system of managed care (BW--Oct. 7): Regional health care purchasing corporations, with the power to control costs, would bring group coverage to all employers, the self-employed, the unemployed, and the poor. There are many ways to approach the problem. It is vital that whatever the choice, effective cost containment must be a central element of the plan.

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